RPSG Ventures (NSE:RPSGVENT) Is Looking To Continue Growing Its Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in RPSG Ventures' (NSE:RPSGVENT) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on RPSG Ventures is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.12 = ₹5.4b ÷ (₹63b - ₹17b) (Based on the trailing twelve months to June 2021).

Therefore, RPSG Ventures has an ROCE of 12%. By itself that's a normal return on capital and it's in line with the industry's average returns of 12%.

Check out our latest analysis for RPSG Ventures

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating RPSG Ventures' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From RPSG Ventures' ROCE Trend?

The trends we've noticed at RPSG Ventures are quite reassuring. Over the last three years, returns on capital employed have risen substantially to 12%. Basically the business is earning more per dollar of capital invested and in addition to that, 26% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On RPSG Ventures' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what RPSG Ventures has. And a remarkable 218% total return over the last year tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if RPSG Ventures can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing RPSG Ventures we've found 3 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While RPSG Ventures may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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